Influence for Sale: Evidence from the Italian Advertising Market∗

What is the impact of conflict of interest, in the absence of precise rules? We consider the case of Italy, which does not require a prime minister to divest business holdings. Indeed, since 1994, Berlusconi has been three times prime minister while remaining in control of the major private television networks. Firms who want to curry favor may hence shifts their advertising from the public channels to the private ones, thus benefiting Berlusconi himself. We find evidence that such shift takes place when Berlusconi is in power, and significantly more so for more companies in more regulated industries. As predicted by the model, the effect induces both a higher price for ads in Berlusconi’s network when he is in power, as well as some evidence of a cross-sectional shift in companies spending. These findings highlight the possible distortions associated with conflict of interest in the absence of divesture rules. ∗We thank Daniel Diermeier, Oliver Latham, Maria Petrova, Michele Polo and Francesco Siliato for helpful comments and discussions. We also thank participants at the 2012 Nemmers Prize Conference, the 2012 Workshop on Media Economics (Bogotá) and the 2013 AEA conference, and seminar participants at Bocconi, Frankfurt, CSEF Naples for helpful discussion. Barbara Biasi, Elia Boe, Emanuele Colonnelli, Monica Consorti, Simone Lenzu, Anna Martinolli, Arianna Ornaghi and Edoardo Teso provided excellent research assistance. †University of California Berkeley and NBER ‡Sciences Po §Brown University and NBER ¶Bocconi University and IGIER